Your business will die. 'When' is the big issue.

Published: Monday, April 14, 2014 at 1:00 a.m.

Last Modified: Saturday, April 12, 2014 at 4:55 p.m.

When new retail developments crop up, I often drive around parking lots, trying to guess which yet-to-be opened establishments will not be there in a year.

How can a store that sells $4 cupcakes, for example, sell enough units to pay the rent? What about other expenses, such as electricity, product costs, equipment maintenance, payroll and, perhaps, franchise fees? How many cupcakes will this business have to sell in a month, given that the cupcakes are the absolute best ever, look terrific and taste great?

Have they thought all of this through? Do they have a business plan driven by real-world assumptions? What if their assumptions are wrong? How much money are they prepared to lose? Will they know when to pull the plug, or will they hang in there, hoping things will improve for unknown reasons?

Watching the ever-popular Shark Tank on ABC, Shark Kevin O'Leary (aka Mr. Wonderful) often suggests that he will get his money back by receiving a payout per unit sold, in perpetuity. This is often in lieu of taking equity in the form of stock. How long is perpetuity and what are Kevin's expectations?

When a prospective business owner considers the various ways to structure their business, such as C-corp, S-corp, LLC, etc., inevitably he learns that beyond the sole proprietorship, various types of company formation have perpetual existence -- that is, survival as its own entity beyond the life of the founder.

I hate to break this perpetuity business bubble but, generally speaking, most businesses will fail, become obsolete, be mismanaged, or just plain go out of business for myriad reasons. In a relatively short time, their business will die. Even gigantic companies with household names sometimes cease to exist. Lehman Brothers, Washington Mutual, WorldCom and Enron are just a few examples.

What about franchises? There are good and bad franchises.

Some of the worst, according to SBA failure rates, are Wings-N-Things (94.12 percent); Noble Roman Pizza (86.36 percent); and Blockbuster Video (78.57 percent). Some of the best have a 0 percent SBA failure rate, including Wendy's, Merry Maids, Harley Davidson, Five Guys and State Farm Insurance.

What does this mean for your business? If you haven't yet begun one, choose your niche with care. What type of business will you decide to operate, in what location, and with how many employees? You'll want to keep your break-even number as low as possible and make your mistakes as inexpensively as you can. With limited funds, you can't afford to make costly mistakes.

If you're already in a business, what is the stage of your business life-cycle? When might your business become obsolete, be out-competed or run out of money? Maybe pivoting or reinventing your business to stay viable as an entity is the right call. How will you know?

I encourage you to assess where your business stands.

Ichak Adizes, founder of the Adizes Institute consultancy, created a simple 10-stage corporate lifecycle model. This model shows how a business proceeds from one stage through the next, from inception to cessation.

It provides a fundamental basis for understanding organizational change. The model can help in understanding principles such as reinvention, domination and acquisition.

Adizes' "Corporate Lifecycles: How Organizations Grow and Die and What to Do About It" (1988) is regarded as a classic in management theory.

At www.adizes.com, in 10 minutes you could learn where your company is in its lifecycle and learn more about what you can do at this stage to improve its longevity. (Although the Adizes Institute says the model may not apply to all business types.)

How can you master change? The first step: Know where your company is in its business lifecycle. The second step: Know how to get to "prime" (the top of your game) and stay there as long as possible.

Although this is obviously beyond the scope of this column, I want to point you in a direction that can help you take the steps necessary to better understand and improve your business.

Remember: If this was a cake walk, everyone would do it. I think I'll have one of those $4 cupcakes now.

Dennis Zink is a volunteer, certified mentor and chairman elect with Manasota SCORE. He is the creator and host of Been There, Done That! with Dennis Zink, a business podcast series. He also facilitates a CEO roundtable for the Manatee Chamber of Commerce, runs a business MeetUp group, Success Strategies for Business Owners and is a business consultant. Email him at centreofinfluence@gmail.com.

<p>When new retail developments crop up, I often drive around parking lots, trying to guess which yet-to-be opened establishments will not be there in a year.</p><p>How can a store that sells $4 cupcakes, for example, sell enough units to pay the rent? What about other expenses, such as electricity, product costs, equipment maintenance, payroll and, perhaps, franchise fees? How many cupcakes will this business have to sell in a month, given that the cupcakes are the absolute best ever, look terrific and taste great?</p><p>Have they thought all of this through? Do they have a business plan driven by real-world assumptions? What if their assumptions are wrong? How much money are they prepared to lose? Will they know when to pull the plug, or will they hang in there, hoping things will improve for unknown reasons?</p><p>Watching the ever-popular Shark Tank on ABC, Shark Kevin O'Leary (aka Mr. Wonderful) often suggests that he will get his money back by receiving a payout per unit sold, in perpetuity. This is often in lieu of taking equity in the form of stock. How long is perpetuity and what are Kevin's expectations?</p><p>When a prospective business owner considers the various ways to structure their business, such as C-corp, S-corp, LLC, etc., inevitably he learns that beyond the sole proprietorship, various types of company formation have perpetual existence -- that is, survival as its own entity beyond the life of the founder.</p><p>I hate to break this perpetuity business bubble but, generally speaking, most businesses will fail, become obsolete, be mismanaged, or just plain go out of business for myriad reasons. In a relatively short time, their business will die. Even gigantic companies with household names sometimes cease to exist. Lehman Brothers, Washington Mutual, WorldCom and Enron are just a few examples.</p><p>What about franchises? There are good and bad franchises.</p><p>Some of the worst, according to SBA failure rates, are Wings-N-Things (94.12 percent); Noble Roman Pizza (86.36 percent); and Blockbuster Video (78.57 percent). Some of the best have a 0 percent SBA failure rate, including Wendy's, Merry Maids, Harley Davidson, Five Guys and State Farm Insurance.</p><p>What does this mean for your business? If you haven't yet begun one, choose your niche with care. What type of business will you decide to operate, in what location, and with how many employees? You'll want to keep your break-even number as low as possible and make your mistakes as inexpensively as you can. With limited funds, you can't afford to make costly mistakes.</p><p>If you're already in a business, what is the stage of your business life-cycle? When might your business become obsolete, be out-competed or run out of money? Maybe pivoting or reinventing your business to stay viable as an entity is the right call. How will you know?</p><p>I encourage you to assess where your business stands.</p><p>Ichak Adizes, founder of the Adizes Institute consultancy, created a simple 10-stage corporate lifecycle model. This model shows how a business proceeds from one stage through the next, from inception to cessation.</p><p>It provides a fundamental basis for understanding organizational change. The model can help in understanding principles such as reinvention, domination and acquisition.</p><p>Adizes' "Corporate Lifecycles: How Organizations Grow and Die and What to Do About It" (1988) is regarded as a classic in management theory.</p><p>According to Adizes, there are 10 stages in the corporate lifecycle: 1 - Courtship; 2 - Infancy; 3 - Go-go; 4 - Adolescence;' 5 - Prime; 6 - Stability; 7 - Aristocracy; 8 - Recrimination; 9 - Bureaucracy; and 10 - Death. You can read more about what these terms mean at businessballs.com/adizeslifecycle.</p><p>At www.adizes.com, in 10 minutes you could learn where your company is in its lifecycle and learn more about what you can do at this stage to improve its longevity. (Although the Adizes Institute says the model may not apply to all business types.)</p><p>In addition to the business-lifecycle stages, Adizes offers 11 methodologies to help make businesses survive, grow, change and be successful. These include: 1 - Organizational diagnosis; 2 - Team building; 3 - Change management; 4 - Vision/mission/values; 5 - Structural alignment; 6 - Management information systems; 7 - Technology transfer; 8 - Peak performance stretching; 9 - Strategic resource allocation; 10 - Systemic cybernetic structure; and 11 - Synergistic rewards systems.</p><p>How can you master change? The first step: Know where your company is in its business lifecycle. The second step: Know how to get to "prime" (the top of your game) and stay there as long as possible.</p><p>Although this is obviously beyond the scope of this column, I want to point you in a direction that can help you take the steps necessary to better understand and improve your business.</p><p>Remember: If this was a cake walk, everyone would do it. I think I'll have one of those $4 cupcakes now.</p><p><i>Dennis Zink is a volunteer, certified mentor and chairman elect with Manasota SCORE. He is the creator and host of Been There, Done That! with Dennis Zink, a business podcast series. He also facilitates a CEO roundtable for the Manatee Chamber of Commerce, runs a business MeetUp group, Success Strategies for Business Owners and is a business consultant. Email him at centreofinfluence@gmail.com.</i></p>